Rising to the challenge
Martin Pedersen, CEO of Danish spare parts company JP Group, tells us how he is dealing with the huge change across the industry.
“The market is going through huge change, but we also see this as a fantastic opportunity. With change there are always winners and losers.” Given that he has worked 35 years in the family automotive parts business founded by his late father, Martin Pedersen doesn’t say these words lightly. Whether it’s the coming of Electric Vehicles (EVs), fast-changing consumer habits among younger drivers, or the digitisation of the industry, never has there been so much to consider. “The market has become very complicated. It makes planning extremely difficult right now and it’s pretty impossible to look too far ahead. In this market it is all about being as flexible as you can be and preparing your business for change.”
Of these challenges he says that the EV revolution will ultimately pose the sternest test. “It is all a matter of speed, how fast will this market develop? For instance, across Central Europe we are already seeing strong growth in demand for hybrid cars which actually presents an opportunity for the aftermarket because you are still supplying both traditional parts but also new parts specific to hybrids.”
Pedersen believes hybrids will continue to take a big proportion of the EV market as the necessary battery technology catches up. “We are not yet at the 100% EV stage and in the meantime demand for hybrids will get stronger. The battery technology needed will arrive, but I don’t think anyone truly knows whether we are talking five, ten or 20 years time.”
Like the rest of the automotive industry, the aftermarket is also grappling with the consequences of decreasing car ownership, especially among the young.
“Owning a car for younger people is no longer a priority and we are seeing a much greater drive towards pay-as-you-go and car sharing,” adds Pedersen. “When I was 18 my first priority was to buy a car. Today 18-year-olds think having a car is simply a lot of trouble.”
So how does a company like JP respond to these challenges? One way is to structure itself so that it is not over exposed to any one part of the sector. For instance, the group today splits into three divisions: a sales, distribution and marketing arm for spare parts; a business manufacturing spare parts; and a chain of fast-fit exhaust centres in Denmark.
The group has also been specifically targeting the classic car market where it has developed a particular niche supplying parts to classic VW and Porsche models. In fact, the classic car market now accounts for 90% of JP’s manufacturing production and up to half of its distribution market. “Amid all the uncertainty elsewhere the classic car market remains a stable one for parts, which is precisely why it has been so successful for us. This contrasts with the more general aftermarket which is seeing sharp variations in demand from both segment to segment, and from country to country.”
Pedersen says areas of Western Europe are now starting to see notable drops in demand for parts, which is why the company has also been moving heavily into Eastern Europe and Russia in recent years.
Although Germany remains the most important market for JP, up to 40% of its spare parts are now exported to Eastern Europe. He says the market is particularly attractive because consumers are moving away from using OEM service centres.
“They are keeping their cars for longer and there has been an accelerating move towards using independent retailers. At the same time, we have also seen a rising leased car market which also benefits our model.”
Remanufacturing, a part of the market that JP is not in, is also proving slow to take off across Eastern Europe. “In some countries such as Belarus, Ukraine and Russia it is actually forbidden to import remanufactured parts at all. However, the picture is now very different across the EU where this market is growing fast.”
Pedersen says the digitisation of vast swathes of the automotive industry will continue to pose particular challenges for the aftermarket.
“The impact will be most beneficial for the consumer. For instance, on-board computers can warn you if there are problems with your car, they can tell you where the closest service centre is. But I think these digital advantages for the consumer are not such great advantages for the aftermarket which is grappling with how it can maintain customer loyalty in this new environment.”
He believes this fast-changing landscape will also necessitate increasing tie-ups and consolidation across the sector. “As the market becomes more complicated aftermarket companies will need synergies in order to make the necessary improvements, such as implementing the digital advances.
“This applies to us as much as anyone. We have concluded that to grow and have a bigger share of the market we shouldn’t be trying to do this on our own. If the right partner comes along we will certainly be speaking to them.”